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Shutdown Fallout and the Fed’s Stimulus Plan

HI10-18-13The government’s back up and running, and a newly struck deal on the debt crisis has headed off a default. Now, though, comes the fallout from the 16-day shutdown, as the dollar hovers near its lowest point in eight months and the Federal Reserve ponders what to do about tapering off its stimulus plan.

According to a new CNBC report on the aftermath of the shutdown, the dollar index (officially, the New York Board of Trade) placed the US currency near that eight-month low relative to various other major world monies, including the Chinese yuan, now hitting record highs.

The downturn of the dollar means uncertainty for the economy as a whole. The shutdown affected not just government institutions and programs, but it also rippled into nearly all other sectors. That leaves the Federal Reserve reevaluating the status of the massive stimulus plan it put into place in September 2012.

We’ve discussed the ups and downs of the stimulus plan in this space before, as the Fed waffled about whether the economy was strong enough to allow a tapering down of the program to buy up trillions of dollars worth of mortgage backed securities. Although the original intent of the plan was to shore up the housing recovery, factors such as improvements in the employment picture and the stability of the dollar also played a role in decisions to keep up the plan at current levels or scale it back.

Now, as the dollar remains depressed and new mortgage lending rules are having a cooling effect on the housing recovery, the Fed stands ready to keep the program rolling at top speed for far longer than originally anticipated – even, by some estimates, into 2015. That’s far beyond the projected end of the plan, in late 2013 or early 2014.

Financial experts are expecting the dollar to sink even further before it recovers, and the direst predictions hint at a full recession as result of the shutdown. That means the stimulus may be necessary now to keep interest rates low and the consumer economy going.

What does this all mean for the emerging housing market – and for investors following Jason Hartman’s recommendations for building wealth in income property? New regulations that arose from the massive mortgage lending fraud investigations have imposed tighter standards on mortgage qualifications, but the artificially low interest rates created by the stimulus plan are likely to stick around.

Industry experts warn that those rates probably won’t be quite as low as the historic levels they reached a few months ago. But they should still create favorable conditions for qualified mortgage applicants to buy investment properties at current market prices – and to stay a step ahead of the fallout from the government’s hiatus.  (Top image: Flickr/SqueakyMarmot)

Heroic Investing is the complete investing solution for first responders. Read more from our archives:

The Fed Stays the Course on the Stimulus — For Now

No “Septaper” — What’s Next For Housing?

The Herpic Investing Team

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